Category Archives: Economic Research

Economic Research

Namibia New Vehicle Sales – August 2016

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A total of 1,369 vehicles were sold in August, 12.8% less than the number of vehicles sold in July and 14.1% down compared to the number of vehicles sold in August 2015. Since January this year, 11,806 vehicles have been sold, down 18.7% from the number of vehicles sold over the comparable period last year. Vehicles sales is currently trending down a year-on-year basis. This suggests that this trend is likely to continue going forward.

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For the past 12 months, the number of vehicles sold on a cumulative basis in Namibia has been declining, posting negative since December 2015. On a 12-month cumulative basis, 18,523 vehicles were sold up to the end of August 2016, 17.1% less than the number of vehicles sold over the same period last year and 1.2% less than the cumulative number of vehicles sold in the 12 months to July this year.

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On a monthly basis, total passenger vehicle sales fell by 17.8% to 537 in August, the lowest number of passenger vehicles sold since January 2013. Year to date, total sales of passenger vehicles declined 21.2% to 5,062 from 6,423 sold in the same period last year. The number of commercial vehicles sold decreased on a year-to-date and year-on-year basis, down 16.8% and 11.3% respectively. Year to date, 6,744 commercial vehicles have been sold, down from 8,106 sold in the same period in 2015. The decrease in the number of commercial vehicles sold was mainly driven by a contraction in light and medium commercial vehicle sales. On a month-on-month basis, the number of commercial vehicles sold declined by 9.3% in August to 832, down from 917 in the preceding month.

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Toyota and Volkswagen dominated the passenger market, selling the most vehicles in August, with the two brands claiming 29.2% and 28.7% respectively.  Toyota once again was the market leader in light commercial vehicles, having the lion’s share of sales at 45.2% of the market, followed by Nissan at 16.6%, and Isuzu in 3rd place.

The Bottom Line

Throughout the period of 2014 all the way to mid-2015, we have seen robust growth in vehicle sales, which was driven by a strong consumer base supported by expansionary fiscal and monetary policy and real wage growth in those periods. However, recent data indicates that this is no longer the case as vehicles sales contractions have been seen. Strong growth in vehicle sales over the last couple of years has significantly increased the base on which vehicle sales growth is calculated and this has contributed to the contractions seen in vehicle sales on a 12-month cumulative basis and year-to-date basis. That said the number of vehicles sold on an annual basis is still fairly strong.

The slowdown in the number of vehicles sold has been driven by a number of factors. For instance, higher interest rates and inflation levels, reduction in government spending (directly on vehicles and otherwise), and a weaker economic climate at large have adversely impacted the demand for vehicles. In addition, the amendment to the Credit Agreement Act made on 20 July, enforcing a mandatory 10% deposit on all passenger vehicles and reducing the maximum repayment period to 54 months will further drive down vehicle sales and growth thereof going forward.

Namibia CPI – August 2016

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The Namibian annual inflation rate slowed down to 6.8% in August, down from 7.0% in July. On a month on month basis, prices continued to rise, up 0.2% after the 0.6% uptick seen last month. On a year on year basis, five of the basket categories increased at a faster pace in this month than in July, which were offset by a slowdown in prices of the remaining categories. The biggest contributor to inflation on an annual basis was housing, water, electricity, gas and other fuels, while food and non-alcoholic beverages was the biggest contributor on a monthly basis.

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Prices in the food and non-alcoholic beverages basket category decreased 0.2% in August, after an increase of 1.0% was recorded over the preceding month. On a year-on-year basis, inflation in this category also slowed to 11.5%, down from 12.2% when compared to July. The slowdown of food and non-alcoholic beverages inflation was driven by easing of price increases across the majority of the sub-components, with only sugar, jam & honey and coffee, tea & cocoa rising relatively more quickly. Despite the slowdown in price increases, prices of almost all the sub-components are increasing at double digits, which can largely be ascribed to the drought currently experienced in Namibia and South Africa as is reflected by price increases of fruit, vegetables and grain products such as bread & cereals.

Transport, as the third largest basket category by weight, made the second largest contribution to monthly inflation. On a monthly basis transport saw an increase in prices of 0.5% compared to a 1.6% increase in July.  On annual basis price inflation of the transport category increased to 3.4%, up from 3.3% in July, significant above last year’s average of -2.1%.

The annual inflation rate for the category housing, water, electricity, gas and other fuels eased to 8.0% in August, down from 8.2% in July, however, up from 2.3% recorded in August last year. On a monthly basis this category has seen an increase of 0.2% in August when compared to 0.9% in July. Rapid price increases have been seen in this basket category mainly as a result of increases in inflation for water supply, sewage services and refuse collection after the City of Windhoek increased water tariffs in July. Price increases for rentals and other dwellings have been extremely low for a number of years, as reported by the National Statistics Agency (NSA), and the sudden spike at the beginning of the year has largely resulted in the elevated level of annual inflation we are currently seeing.

Alcoholic beverages and tobacco as the fourth largest category recorded a slowdown in annual inflation of 1.0% from July to 5.6% in August 2016. On a month on month basis, prices in this category decreased slightly, down 0.1%. Alcoholic beverages and tobacco inflation has been consistently above the average inflation figure for most of the last five years when looked at on an annual basis, more consistently so than almost any other basket category.

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Inflation expectations for the upcoming fiscal year are notably higher than was the case in 2015. There are a number of reasons for this. Firstly, major rand weakens through 2015 has driven up the cost of imports into the Common Monetary Area in rand terms; secondly, oil prices, which fell dramatically through 2014 and 2015 now appear to be stabilising, and the pass-through of base effects is likely to see an upward rebasing in inflation; third, rand weakness and other factors have driven up costs for many services in the country, including many critical utilities such as electricity and water; fourth, drought and poor harvests in the region mean that food prices are likely to increase, particularly if basic grain imports are required; and fifth, increasing interest rates are likely to see some pass-through of increased borrowing costs to consumers, and reduce consumer disposable income.

The first half of 2016 saw notably higher inflation than was the case through 2015, primarily for the aforementioned reasons, as well as a notable increase in rental inflation rates. The same inflation pickup was seen in both Namibia and South Africa, with South Africa’s inflation moving out of the target 3-6% band for the first time in over 18 months, prompting interest rate tightening from the South African Reserve Bank.

Contrary to popular belief, we are of the view that inflation will remain relatively high for the rest of the year, and into 2017. This view is primarily driven by the enormous administered price increases we have seen for services over recent months. Municipal services, water and electricity have all seen at least high-teen percentage increases in prices over the past few months. These increases will remain for the next 12 months, until the base is reset with their inclusion. These increases are likely to more than offset the improvement in transport inflation due to a stronger rand, and the expected slowing of increases in food prices due to more favourable grain prices.

Due to the aforementioned factors, we have revised our inflation expectations for 2016 up to 6.5% (6.3% in the first half of the year) from our previous expectation of 5.8%. The main reason for the major increase comes from the increase seen in administered prices, but also the large step-up in rental inflation seen since January 2016. As this is recorded once a year, the current high inflation for rental payments, at 7%, up from 1.5% in 2015, will provide buoyancy to the overall inflation number for the rest of the year.

Building Plans – August 2016

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A total of 177 building plans were approved in August to the value of N$269.4 million. On a year-to-date basis, the City of Windhoek has approved 1,141 building plans, a significant decrease when compared to the 1,759 plans approved over the same period last year. However, the dollar value of building plans approved on a year-to-date basis stood at N$1.403 billion in August, down only 0.5% or N$6.4 million over the comparable period last year.

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Majority of building plans approved, were for plans of additions to existing structures. Year to date, a total of 935 building plans for additions were approved in August, 439 less plans when compared to the same period last year and 466 less when compared to the average ytd figure over the last 10 years. From a value perspective however, N$705.7 million worth of additions were approved year to date, which compares to N$659.6 million over the same period last year and N$476.1 million average ytd figure since 2006

Year to date,136 less residential units were approved when compared to 287 over the same period last year and 141 less than the ytd average since 2006. In dollar terms, N$324.8 million worth of residential plans were approved year to date, more or less in line with the N$339.8 million over the same period in 2015 and N$328.3 million average ytd figure over the last ten years.

The number of commercial units approved in 2016 so far amounted to 55, valued at N$372.5 million. This compares to 98 units, valued at N$410 million over the same period last year. On average over the last 10 years, 52 commercial units, valued at N$286.9 million were approved year to date.

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The 12-month cumulative number of building plans approved continued trending down in August, as depicted by the graph below.  On a 12-month cumulative basis, 1,849 building plans were approved in August, 30.2% less than the same measure for August last year. In value terms however, 12-month cumulative value of plans approved in August was 8.8% higher than the value of plans approved over the same period last year, at N$2.190 billion. The 12-month cumulative number of building plans approved has fallen to a level last seen in November 1997, with most of this drop happening during the last 18 months. As a leading indicator for economic activity in the country this reinforces our view that we will see economic growth slow in 2016 and possibly beyond.

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The slowdown in the number of building plans approved has been largely driven by a lack of serviceable land in Windhoek as opposed to the popular belief that water restrictions in the Khomas region has been the causal factor. Furthermore, there have been no water restrictions imposed on construction activities around Windhoek. The Municipality has indicated that, there is a high demand for land, but little land left around Windhoek that can be developed.

Anecdotal evidence suggests that the lack of available land has contributed to a large extent to the number of additions applied for over the last 15 years as well as limiting the amount of new plans applied for. As property prices increase due to lack of supply so does the number of people living under one roof which may then lead to additional space added to existing buildings. Children stay with their parents for longer, and families accommodate members who cannot afford to rent, etc. The fact that we have seen a steady decline in additions on a cumulative basis over the last two or so years suggests that value addition to existing properties has become significantly less affordable and that the gains from such additions are now much less pronounced than before.

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Going forward, affordability issues are likely to mean that the lack of availability of land will become an even bigger issue than it is at present. In the past the lack of available land has driven increases in property prices, but the limit of affordability is currently being tested, and thus property prices are unlikely to increase at the accelerated rate seen previously.

Half-year revision of our growth expectations

At the beginning of the year, we believed that some growth could be expected in the construction sector, following what we believe will be a large contraction in 2015, mostly due to base effect as a result of three big mines constructed through 2014. However, this view was based on the expectation that we would see the commencement of a number of large government projects during the year, including water and energy projects. We have now revised this view, and believe that these projects will not start until later years. In the meantime, Government has also cut the capital budget aggressively. The slowdown seen in the number of building plans approved also suggest difficult times ahead for the construction industry.   As a result, we have revised down our growth forecast for the construction industry for the year, expecting a contraction of 4.5%.